Letter to the Editor

There is jubilation in the stock market after the Finance Minister agreed to the proposals put forward by the SECP. In fact, the market had rallied almost 10% ahead of the finance minister approval to the proposals, indicating clearly that insiders were aware that these measures will be approved. So what are these measures about?

1.Source of income will not be asked till 2014 and after 2014 these funds will be treated as white money.

2.Capital gains tax will be same at 10% till 2014.

3.NCCPL will directly deduct CGT.

4.Withholding tax on sale of shares will be abolished.

The most interesting and controversial clause is that no question will be asked regarding the source of funds for investments in the stock market till 2014 and which will subsequently be declared white after 2014. This means that the tax authorities will not question anyone who invests in the stock market beyond his identifiable source of income till 2014. Is the finance minister trying to make the stock market a money laundering platform where the ill gotten wealth could be channelized and subsequently declared as legitimate asset of the individuals? Historically, during the times of various governments whitening schemes were announced but never before to such an extent.

One obvious benefit is that this move could entice people to channel their wealth away from the areas which don’t get declared for the tax authorities. A distinction should be made between what is ill-gotten wealth made through illegal means and the wealth made on real business activities without coming into in the ambit of tax. The latter includes areas such as real estate, retail businesses and whole sale distribution etc. These are the real business activities people are engaged in without getting themselves into the ambit of declaring their income. The wealth accumulated through such businesses normally doesn’t get declared and thus people are able to avoid paying taxes on their wealth. However, at the same time, there are ways to make their wealth white by buying prize bonds etc at a cost not exceeding 10% of the wealth. So anyone wishing to make his wealth white has to pay 10% upfront, that’s it. It can be done when there is a need to do so as this window is always available. Hence, these people are not going to start investing in the stock market just because of this announcement. They will continue to invest in their own areas where they are making reasonable returns.

The people who could potentially start investing money in the stock market, who are not involved in any real business activities but park their investment in various informal businesses, buying of real estate or such business areas where they are not required to declare their source of funding. Their original source of income is quite often ill-gotten wealth from dubious means. They can’t afford to bring out their wealth to the tax authorities as they don’t have the means to justify its origin from legal activities. By declaring that the stock market investment will not be questioned is tantamount to opening an easy way to launder ill-gotten money. Someone has commented that the minister has created a window for the present ruling elites of PPP to launder their money through the stock market which they have made while in office. These are the questions people will be asking the minister as the government is in the last year of its office. There are serious accusations of corruption against this government and therefore it is quite reasonable that people will voice their concern about the intention of this move at this stage.

Should FBR stop asking about the source of income then there is no limit to what people can declare as their wealth but it’s not going be like this. The measures announced on one hand intends to bring in money back into the stock market from apparently those who don’t want to declare their source of income and at the same time it wants to deduct capital gains in the form of withholding tax through the National Clearing Company (NCCPL). The message is… “Okay! You come to the stock market, we will not ask any question about the source of income but whatever gains you make it will be liable to pay capital gains tax at source”. This appears to be a good arrangement on the surface but how this thing will work is rather difficult to comprehend at this stage. The way these measures have been presented is as if the Pakistani stock market is dependent on black money only. In any civilized society, there can’t be any issue with asking the source of income/fund. Whether its stock market investments, initiating any business or building a house; there is bound to be question about the source of income in most countries. While announcing these measures for stock investments, one should ask the finance minister why single out stock market investments only, why not people should be exempted from declaring their source of funding if someone wants to start a business or for that matter why not people who make their own home should be exempted from declaring the source of funding.

Measures like these are not going to bring in sustainable inflows into the stock market. Instead of simplifying the matters, the authorities are in the process of making things more complicated and inviting suspicion that a door has been opened for whitening the money. Capital gains tax in itself was an ill-timed move and no matter how hard they try to enforce it, there is little the authorities should expect to generate out of this head. It’s never too late to reconsider the withdrawal of capital gains tax till there is some opportune time and the ground is ready for implementation.

Mahatma Gandhi and Jinnah in a heated conversation.
Khan Abdul Ghaffar Khan and Jawaharlal Nehru walk to a Congress Meeting
while Sardar Patel is pulled alongside in a rikshah.
Ghaffar Khan with Mahatma Gandhi.
Khan with Mahatma Gan... more

Dear Mr Editor,
My heart goes out with untimely sad demise of Arfa Karim, the illustrious little child of the nation who has made the name of Pakistan Greater. It was the will of the God that the child howsoever outstanding and dear to us destined... more

Mahatma Gandhi and Jinnah in a heated conversation. A well-known photograph recently attributed to Kulwant Roy.
Khan Abdul Ghaffar Khan and Jawaharlal Nehru walk to a Congress meeting while Sardar Patel is pulled alongside in a rikshah.
Khan ... more

Dear Editor,
My heart goes out with untimely sad demise of Arfa Karim, the illustrious little child of the nation who has made the name of Pakistan Greater. It was the will of the God that the child howsoever outstanding and dear to us destined to... more

The EU is a somewhat loose association of sovereign, independent states and is neither a federation or a confederation. Just like in Pakistan, the EU member state have also agreed upon a list of subjects (referred to as competencies in the EU) tha... more

The Editor,Daily 'Business Recorder',Karachi. Dear Sir, Through the columns of your esteemed daily, I would like to submit that pensioners' of National Bank of Pakistan throughout the country are passing a painful and agonising period due to a... more

Just over a fortnight ago, the National Assembly Standing Committee on Ports and Shipping unanimously passed the Carriage of Goods by Sea Bill 2011 to be presented before the National Assembly for further legislation and house vote. The proponents / ... more

Dear Editor,
I want to bring into your notice the fact that we as a nation could not focus on the issues that really deserve our attention. This has resulted in poverty and many other social evils. And we are loosing time in identifying and addr... more

Dear Editor,
"Education is the third eye of a man".
Our country got independence almost 64 years ago, since then, it cannot be said that a public sector has not even fulfilled the requirement of the people of Pakistan by providing them good educati... more